The Airlines Blink on Fares

Joe Sharkey, The New York Times

Tuesday, 7 Aug 2012 | 10:02 AM ETThe New York Times

SHARES

I found it interesting to see that the latest attempt by the major airlines to raise fares had faltered by Monday morning, as United Airlines backed off after evidently taking a good look at softening demand.

Ichiro | Digital Vision | Getty Images

United had initiated the attempt to raise fares last week, but when it abandoned the increase over the weekend, American Airlines and Delta Air Lines also backed off, according to Rick Seaney, the chief executive of FareCompare.com, who is an indefatigable tracker of airline fare activity.

It’s too soon to know whether airlines may try again in September to raise fares or cut capacity even further in their madcap chase to fill as many seats as they profitably can.

In the meantime, passengers are also chasing those seats, which are becoming increasingly difficult to find at the lowest fares as airlines impose extra fees on everything in flight — including the better (or less awful) seats that aren’t in the middle of a row back by the lavatories.

With the latest attempt to raise fares, “It’s sort of ‘Zombieland,’ ” Mr. Seaney said. “I think airlines are just probing” for signs of vitality in demand.

As we all know, fares have been going up steadily all year. I abandoned a leisure trip from Tucson to southwest Florida last month because I wasn’t willing to pay a fare that was twice what I paid in past years. I also decided not to attend the annual Global Business Travel Association convention in Boston last month because it just wasn’t worth the high price for airfare and hotel and the hassles of getting there and back.

I didn’t mind missing the business trip, but I’d been looking forward to the leisure one to Florida. A month before my planned departure, I thought fares were too high, about $750. I decided to wait for the prices to drop.

“Did you get your ticket?” my wife kept asking.

“No, my new strategy is to wait till the last minute,” I assured her.

A few days before my hoped-for departure, fares were higher than ever, and choices were now limited mostly to flights with multiple connections. Southwest , meanwhile, does fly direct to Fort Myers — but the fare was over $1,000, which was irrelevant anyway because there were no seats available.

Are we reaching a point where demand is softening and airlines are going to be scrambling to further reduce supply? Certainly, that’s already an indication in trans-Atlantic travel, where fare sales are proliferating as demand slackens and capacity is shrinking.

In the second quarter, United Airlines had 4.1 percent fewer trans-Atlantic seats than in the second quarter of 2011 “in the face of Europe’s continuing economic challenges,” James E. Compton, the company’s chief revenue officer, said in a conference call last month.

Globally, the outlook is uncertain. “Oil prices surged in July,” the International Air Transport Association warned in its latest financial monitor report. The report added that “softening demand could begin to undermine the persisting upward trend in U.S. passenger yields.”

Keep in mind that those domestic passenger yields — the revenue per passenger — are strongly buttressed by all those fees the airlines charge above the basic coach fares for things like checked bags, better seats and services like in-flight food and Wi-Fi. If corporate travel managers embark on new cost-cutting sprees, those are the first services they will stop covering.

Domestically, airlines continue to cut capacity and weed out routes that don’t provide high yields — which mostly means routes handled by the regional jets that are the backbone of air service in midsize and smaller markets. Delta, for example, reported that as part of its overall domestic capacity reductions, it flew 6.9 percent fewer seats on regional routes in July compared with July 2011. Delta’s trans-Atlantic capacity was also down sharply, by 7.6 percent.

The retreat from the latest attempt to raise domestic fares comes as airline managers struggle to find the right mix of price and supply as fuel costs fluctuate and the economy shows signs of slowing down.

So, as trivial as my personal spending is to an airline, I may have been unwittingly sending two clear signals last month when I abandoned plans for a leisure trip and a business trip. Even though the company pays my business expenses, there comes a point where I weigh the benefits of any given trip against the costs.

In backing away from what would have been the fifth general domestic fare increase this year, airlines were apparently most worried about the impact on leisure travel, Mr. Seaney said. “I’m positive they felt they were right on the wallet price-point dividing line,” where another $20 or $30 a ticket would have kept a lot more leisure travelers from flying, he said. The implications for business travel, which is at its slowest pace in late summer, are less clear.

“I think business travelers might still absorb an extra $10 or $20 as the cost of doing business,” he said. “But I think leisure travelers are right on the edge. And the airlines can’t really fly profitably if they don’t fill the back of the plane.”

In general, he added, price resistance is growing among all travelers: “I’ve never heard more complaints than I hear now from people about buying airline tickets. Everybody’s like, ‘What’s going on? I never paid that much for that trip, and I’m not going to this time. Where’s my car?’ ”